The coronavirus has become the hottest topic of the world agenda in recent months. The cases which lead to death figured with thousand numbers in some places are seen in every country now. When the geographical dissemination of the virus is analysed, rigid effect of the virus, which has been heard in the Far East first, is going towards the West in time. Iran and Italy are heading, after China, in the list of countries which are mostly effected from that virus. China seems to get over the negative atmosphere after three months of struggle. While the situation in Europe is the most critical nowadays, overall cases are recently increasing in the US and it seems to increase day by day.
On the other hand, in the same period with the virus, which has been described as pandemic by the World Health Organization, a big shock occurred in the capital markets. Such that, because of the biggest collapse after the financial crisis of 1987 which was named as “Black Monday” in the US where the most advanced financial markets are operating, the date of 12 March 2020 has been recorded as “Black Thursday”. Respectively, S&P 500, Nasdaq and Dow Jones indexes have fallen approximately by 30 % since the New Year. The panic atmosphere on the financial markets has spread over at global level, like the coronavirus. Sharp falls have also followed in the stock exchanges of Asia and Europe, including Turkey. Daily losses have surpassed 10% in some countries. MSCI All-Country World Index comprising the shares of 23 developed and 26 developing economies went into the bear market by falling more than 25% for the last two months.
The health dimension of the problem is not subject of this article and the measures against this pandemic which causes upsetting results for humanity must absolutely be taken seriously. Apart from that, it is noteworthy to think on panic atmosphere, spreading parallel with the virus, in the financial markets and its possible political results.
Financialization of economies, or in other words the rule of finance capital, is a 40-year quest started in the US and the UK then extended to the entire world. The term of the rule of finance capital can in fact be regarded as “the world of finance capital”. The reason for that the financial transactions have become determinant of economic activities step by step in the last 40 years. The finance-capital elites led by giant investment banks have had the capability to affect many political developments in the world in time even if they cannot designate everything. It is difficult to assert the contrary in a world where the real economy is 85 trillion Dollars, but the amount of global debts are 3 times more and the value of total notional assets are 8 times more than it.
It has been written since years that a great collapse is inevitable in the current situation of the world economy which is decoupled from the reality, heading over heels in debt and operating under superficial financial mechanisms. Indeed, virtual games of casino-capitalism and morphine effect created by the perceptions developed for that cannot be maintained. This system will of course come to an end, like any other thing which is expiring, even if the outbreak of the crisis is postponed with urgent measures.
In fact, development of ballooning financial sector has not been questioned until the 2008 crisis. But, the system has come under question with the deep economic crisis lived through from this date on. After the crisis in which financial balloon has exploded, the system has been endeavoured to be saved by injecting trillions of Dollars to the market by various Central Banks with quantitative easing monetary policies, however, it has not been succeeded well. Probably, the success was to retard of the arrival of a bigger second wave crisis.
Nevertheless, a structural transformation has also taken place in the world during the last 12-year period. The globalization phenomenon which had emerged in the West has changed ownership in this process. Asian countries, China being in the first place, have started to come to the forefront in production, industry and trade in the world economy. As a natural consequence of that, international system has transformed to a multi-polar structure in the last four years, in which different power centres have been conflicting.
In the US, which lost global leadership to China, some forces that started globalization forty years ago, are trying to reverse it now. The way to achieve de-globalization is possible through undermining of the free movement of capital, goods and services in the international economy. Not surprisingly, trade wars were witnessed in the US-China rivalry that flared up after Trump’s election. During the trade wars, the US became the flagship of protectionism and China the globalization and free trade. After a trade agreement was concluded between the parties, this time the coronavirus case emerged which hit the global trade seriously. As the global supply chain was undermined by the effect of corona, a negative impact also spread to service sectors such as finance, transportation and tourism. Most importantly, the social dimension of the de-globalization process was also started, due to the quarantine practices and international travel bans.
MORE THAN THE US-CHINA RIVALRY
Concrete development linking the vast rivalry between the US and China with the coronavirus became official by the statement of spokesperson of the Chinese Foreign Ministry. Accordingly, China accused the US army of bringing the virus to Wuhan. Beijing has managed to overcome the shock and defeat the virus with state-focused policies and effective measures, and now emphasizes that this is a global problem as the virus has become widespread throughout the world. Moreover, while the Chinese administration aided the key countries of the Belt and Road Initiative such as Italy and Iran, the U.S. administration displayed an isolationist behaviour by cancelling flights to Europe. What happened was a concrete indicator of the two countries’ approach on international solidarity and globalization.
Nevertheless, it may be more useful to asses all these developments as a struggle between the globalists and their counter-forces, rather than a US-China rivalry since the picture is more complicated. If only evaluated in this way, relationship between the coronavirus on the one hand and crisis in the financial markets and political dimension on the other will be clearly seen.
It was a long time expected that a global economic crisis, like 2008, but with a greater impact, would occur with the explosion of the growing financial bubble. The discussion was on what to trigger this crisis, when it will happen and how its political effects will be. A trigger event like September 11, shocking terrorist attacks and even wars were expected to start a global financial downfall but nobody predicted that a virus would cause panic in the markets. Do not get it wrong! The current system was already unsustainable and a crisis was inevitable, that is, if not the coronavirus, the system was anyway doomed to collapse. But it is interesting that the worldwide financial turmoil coincides with the global epidemic created by the coronavirus, and perhaps it is an excuse for the elites of the global system to explode the crisis. Of course, to make a certain conclusion from today is not correct. We don’t know how the process will go over time and the ideas about it will be clear, but it will not be an exaggeration to claim that a new world is waiting for us after these events.
As a matter of fact, the financial downfall, which gave early warning with partial and temporary stock market declines in 2019, is coming day by day in 2020 with the possibility of turning into a perfect storm. Today, we are in a process in which the volatility index, one of the most sensitive signs of the crisis, sounds alarm bells. On a global scale, perceptions in virtual financial economy, which is positioned as a new reality, prevail over the facts in real economy. Pessimistic news on finance is rapidly circulating in the market. In addition, outbreaks related to human health seem to further fuel the negative atmosphere. The panic leads to speculation, which leads to market collapse. The clearest example of this was seen in the sharp decline in oil prices with the turmoil in the financial markets. Beyond the losses of the three main producers, the USA, Russia and Saudi Arabia, there is a potential ahead of us that the market share struggle between the sellers will escalate and even end of the fifty-years old petro-dollar system is not far away.
Depending on how much the markets are falling, we may see strong comebacks in the short term. Nevertheless, it is almost certain that the downward trend will not change in mid-run. Markets will continue to be trading at high volatility and even if this is not the case now, the situation will turn into a global financial and then a complete economic crisis later.
END OF THE MONETARY POLICIES
The main reason why a global economic crisis will cause more damage than the one in 2008 is that to overwhelm the crisis we need structural and radical measures this time. How previous experiences will be helpful in such a situation or whether they will be a cure is an open question. This time, monetary policies such as shock interest cuts by the Central Banks and pumping 700 billion dollars of liquidity into the market as seen in the recent FED example will not solve the problems. Instead, we are approaching to a period in which nationalizations will be made on a large scale and aggressive national fiscal policies will re-enter to the picture. Those measures will not be surprising. International solidarity existing in the crisis period of 2008 is now not the case and the world economy is now on a very sensitive and fragile threshold.
What makes the issue politically more challenging is the power struggle between Central Banks, which have been operating independently from governments for many years and are the cornerstone of the global financial system, and the political leadership. The most concrete example of this is seen in the US. Trump harshly criticizes FED President Powell and blames him for the slowdown in the US economy. Trump does not consider the extraordinary interest rate cut by the FED sufficient. At the core of the discussion here is the problematic of who will be the responsible guy for the inevitable crisis and how the political landscape will be shaped accordingly.
Let’s remember: The 2008 crisis had eliminated most of the politicians of the time. The explosion point of the 2008 crisis that had started earlier in the US, was the collapse of Lehman Brothers in September 2008. After that, Obama won the elections. Now, it is curious to see when we will reach the irreversible point in the crisis. But a bigger question is how political developments will follow accordingly!
In the upcoming period, there are important elections again on the world agenda and the US presidential elections in November 2020 is the most important one. In election period, it is quite interesting that Sanders, who is antagonistic to big capital and a centrifugal figure as a competitor to Trump, lost altitude in the last month and remarkably, Biden, the head of the global network of Democrats, gained momentum. Trump is leading the race but can lose the presidency, which has been going on for 4 years with relatively successful economic growth, only in one way: A major economic crisis! And it would not be a surprise that globalist elites who do not like Trump are enthusiastic to see this result.
It is a matter of curiosity how coronavirus and the financial crisis will evolve just before the US elections, which will have ramifications over political landscape in the worldwide including Turkey. Let’s see the answer at the end of the day: Will coronavirus and the financial crisis stop de-globalist Trump or the globalists who are trying to stop him?
